‘Strong case’ for crypto regulation to protect investors, says ASIC

The warning comes after a survey conducted for the regulator found only 20 per cent of retail invetsors considered the asset class to be risky.

Around 44 per cent of people hold cryptocurrencies, making it the second most held investment type after shares at 74 per cent. Picture: Marco Bello /AFP

Australia’s corporate regulator has raised the need for regulation of cryptocurrencies, after almost half the people who participated in its latest research said they invested in it, and less than a quarter of those believed their approach to be “risk taking.”

A report for the Australian Securities and Investments Commission shows 44 per cent of people held cryptocurrencies, making it the second most held investment type after shares.

“ASIC is also concerned that there are limited protections for crypto-asset investments given they have become increasingly mainstream and are heavily advertised and promoted,” said the regulator’s chairman, Joe Longo.

“There is a strong case for regulation of crypto assets to better protect investors.”

Cryptocurrencies are not yet regulated in Australia and Mr Longo said there was a lack of understanding among retail investors about these products being unregulated and volatile, with only 20 per cent of crypto asset owners considered their approach to be ‘risk-taking’. “It’s a striking finding and when I read it in the research report I was quite concerned,” said Mr Longo.

ASIC’s report showed 44 per cent of people held cryptocurrencies, making it the second most held investment type after shares at 74 per cent. Picture: Anthony Kwan/Getty Images

Federal regulators around the world are flagging concerns or enacting regulations on crypto currencies after the market lost $US1 trillion ($1.4 trillion) in value over May and June.

Crypto products do not currently face the robust legal protections that help protect investors in stock markets in most developed countries.

Mr Longo said ASIC was working closely with Treasury to introduce regulations in the space, which were complex because different crypto providers use different codes and it was unclear which would be included.

Last month, representatives from European Union states agreed to a deal for their crypto assets law, while progress is being made in the UK and the US.

“The … government have made it a priority,” Mr Longo said. “The issue is the desire to balance innovation and still provide for consumer protections.”

The ASIC research released on Thursday was conducted to understand retail investors’ behaviours, motivations and attitudes since the start of the Covid-19 pandemic. Retail investment levels remained above pre-pandemic levels, according to the survey, and showed increased use of digital and social channels, with 41 per cent of respondents confirming they used these platforms to find out information about investments.

YouTube was the most popular source of information, at 20 per cent, followed by Facebook on 11 per cent, podcasts at 10 per cent, and financial influencers also on 10 per cent.

Mr Longo said the increased use of social media meant ASIC may need to reconsider how it regulated this space.

“A third of all surveyed investors said they are in it for the long-term. However, half of those surveyed admitted they have invested in things because they didn’t want to miss out,” said Mr Longo. “This, coupled with more complex and opaque financial product and service offerings, and the speed and reach of marketing and distribution through digital channels, may expose investors to new risks or higher levels of existing risks.”

The corporate watchdog said it would be looking specifically at digital engagement practices to make sure regulations about promoting investments kept pace with new trends.

The research – taking in 1053 people who had traded in retail securities, derivatives or cryptocurrencies at least once since March 2020 – showed that while 31 per cent of respondents used bank trading platforms, the three next most common platforms all specialised in cryptocurrency.